Worldwide Healthcare Trust Plc – 09 September 2014
Worldwide Healthcare Plc (WWH) is a London-listed investment trust which seeks to achieve capital growth, over income, through investing in health care-related securities on a global basis. The trust’s investment mandate requires the lion’s share of assets to be invested in equities. However, derivatives and other types of securities do feature in the portfolio.
WWH has been established since 1995 when it began life as Finsbury Worldwide Pharmaceuticals Trust. Over time the investment manager has adapted the mandate for the trust to incorporate investment in alternative growth areas such as biotechnology, health care equipment and primary care providers. The investment managers are Frostrow Capital and OrbiMed Capital LLC.
|Benchmark||MSCI World Health Care Index||Ticker||WWH.L||Latest Close||1,480.00|
|52 Week High||1,490.00||52 Week Low||995.00||Exchange||London Stock Exchange|
|Dividend Yield %||1.03||Discount to NAV %||6.81||Latest NAV||1,568.10|
Worldwide Healthcare Trust Plc; Interim Update – 09 September 2014
Worldwide Healthcare Trust Plc has benefited greatly from a strong rebound in the pharmaceuticals arena during August, which follows a period of decline for the sector during the second quarter. Since first initiating coverage of WWH in April, the trust’s NAV has risen steadily by 19.97%, while the shares have also gained 16%.
Much of the driving force behind the positive performance has been acquisition activity and the growing trend toward tax inversions among US pharma companies. The latest of these tax swerves has seen AbbVie Inc, a core constituent of the WWH portfolio, announce its intention to merge with the UK’s Shire Plc in a $54.7 billion deal.
Here AbbVie expects to achieve cost synergies in operations and R&D, as well as the benefit of UK tax rates, when it becomes domiciled in London. Consequently, shares in both companies have risen to set new peaks for the year to date as investors perceive that the deal offers benefits for both parties to the transaction.
Many will remember Pfizer’s earlier attempt at a tax inversion move when it announced a bid for AstraZeneca earlier in 2014, much to the fury and dismay of US lawmakers and UK citizens alike.
Given the current economic climate and the propensity for mergers to result in job losses and lower R&D spending, such practices are generally frowned upon by all outside of the investment community and are now the subject of much debate among US government officials as to whether or not to legislate against it.
While positive for investors, the price action of Q2 has led the discount to NAV to widen slightly, bringing it in line with the investment manager’s target (6%) and implying a market consensus that the trust may be vulnerable to a pullback in the near term.
Despite this, developments in R&D at the sector level have been positive of late, and many of the trust’s core portfolio constituents boast healthy pipelines, robust order books and strong balance sheets. In addition to this, the current trend toward inorganic growth and tax inversions among the larger US companies provides scope for further M&A activity throughout the quarters ahead.
With Pfizer Inc’s attraction to AstraZeneca still unrequited and the risk of US lawmaker intervention to halt the practice of reshoring growing by the day, we are optimistic that at the very least, expectations of further M&A to come will continue to underpin the sector throughout the near – medium term.
In relation to price targets, during April we assigned a medium term target of 1,500.00 pence to WWH.L, which is now within touching distance (1,490.00). Consequently, we now update our trading guidance.
While we still expect the full target to be reached, it is possible that this will prove to be the limit of gains before a pull-back ensues.
Given this believe and the extent of gains made over recent months, we are neutral to bearish on the prospect for further price acceleration onwards from the above point during the near term. Nevertheless, the medium to longer term story supporting ownership of the sector remains very much valid.
In addition to this, the prospect of further M&A activity resulting in improved earnings for sector leaders is likely to see a firm floor placed underneath WWH’s NAV, which should provide a meaningful cushion to the share price at the 1,380.00 level.
Accordingly, we shall monitor developments within the pharma industry, as well as the trust, and shall update our members in line with these as they occur.
Worldwide Healthcare Trust Plc Daily Chart
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